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Forever Bound: How USC’s Arbitration Agreement Highlighted the Risks of Infinite Duration Clauses

Posted by Timothy B. Del Castillo | Jan 29, 2025 | 0 Comments

Arbitration agreements are frequently used in employment contracts to resolve disputes outside of traditional courtroom settings. While these agreements can offer benefits, such as reducing litigation costs and expediting resolutions, they are often challenged on grounds of unconscionability. Unconscionability involves examining both procedural and substantive elements.

Procedural unconscionability occurs when there is an imbalance of power during contract formation, often seen in adhesion contracts, where one party has no meaningful opportunity to negotiate terms. Substantive unconscionability focuses on the fairness of the contract terms, scrutinizing provisions for being overly harsh or one-sided. 

In the case of Pamela Cook vs. University of Southern California (2024), issues surrounding the unconscionability of arbitration agreements were central to the dispute. Pamela Cook, the plaintiff and former employee of USC, sued the University and her coworkers, alleging discrimination, failure to accommodate health-related time-off requests, retaliatory harassment, and constructive termination.

USC's arbitration agreement in question was a key point of contention. Signed as a condition of Cook's employment, the agreement mandated arbitration for all claims against USC and its affiliates, whether or not they related to Cook's employment. Furthermore, the agreement contained no time limits, binding Cook to arbitration even after her employment ended. In its defense, USC argued that the agreement was mutual, providing Cook with the same rights and remedies available in court.

Cook contested the agreement's validity, asserting both procedural and substantive unconscionability. She argued that the agreement was procedurally unconscionable because it was a contract of adhesion, imposed on her without negotiation. She further claimed that the agreement was substantively unconscionable due to its infinite duration, its overly broad scope, and its lack of mutuality.

On appeal, the Court found USC's  agreement procedurally unconscionable because it was a non-negotiable condition of employment, leaving Cook with no meaningful choice. On the issue of substantive unconscionability, the Court highlighted three problematic factors: the agreement's broad scope, its indefinite duration, and the lack of mutuality. The provision requiring Cook to arbitrate all claims, even those unrelated to her employment, was deemed excessively expansive. The indefinite duration meant Cook was bound to the arbitration agreement forever, even after her employment with USC ended, which was considered unreasonably burdensome. The lack of mutuality, wherein Cook was required to arbitrate claims against USC, but USC was not similarly obligated, further tilted the agreement in USC's favor.

The Court of Appeal determined that these unconscionable terms were so pervasive that they could not be severed from the rest of the agreement without fundamentally altering its nature. Severing the terms would unjustly benefit USC from an otherwise unconscionable contract. 

In light of this ruling, California employers should reassess their arbitration agreements, focusing on several key areas: whether the agreement effectively lasts indefinitely; whether the scope is too broad, covering all claims, even those unrelated to employment; and whether there is a lack of mutuality, where employees are required to arbitrate claims against third parties without a reciprocal obligation from those parties. Employers should carefully review their agreements to avoid similar issues, as it remains unclear if any single provision can cause an entire arbitration agreement to become unconscionable.

About the Author

Timothy B. Del Castillo

Tim Del Castillo is Founding Partner of Castle Law: California Employment Counsel, PC.

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